You're navigating a funding negotiation with investors. How do you align conflicting risk appetites?

If you're a startup founder, then before an investor does your due diligence, it is essential that you do the same for investors. Be very specific about what your short term and long-term goals are, and then look for investors that align with those goals. Some investors invest only in specific industry domains; some are more risk averse, some investors don't like solo founders, whereas some others are more than willing to invest in solo founders. Some investors like only experienced industry operator-founders, whereas others also invest in very innovative founders with little industry experience. As a founder, your time is your commodity. Don't waste too much time in pitching to investors who do not match your desired profile.

How unique is your offering in the competitive world and more then that how it is easy to make that technology and what experience team you carry along with your self that shall be judge by an investor.

Aligning investors with similar risk profiles to your offering should be a given but is many times over looked. Another strategy could be to offer both equity and a convertible debenture option to given certain investors a try before you buy opportunity albeit at a slightly less profitable rate.

Well you can never keep everybody happy in life and business. First of all you need to have done your homework and share your views of the risks associated - and a related timeline (something risky today may be less riskier tomorrow - in 5 years - or the exact opposite due to market uncertainties) Second and most important - use risk associated feedback - people have different points of risks and you may have missed something, or there is still something you can learn. Finally, focus on investors and business partners that share similar visions, strategies and risk evaluations with you - it will work so much better for everyone involved in the long term...

Might I suggest asking your potential investor early in the negotiations what are their three major concerns. Then answer them with facts and your revised plan. They are investing money and some time - you and others are investing your heart and soul. Most investors will decide to fund you or not based on how confident they feel you can deliver what you say you will do.

It is not just the value proposition, but it is the Ideal Customer Profiles ( ICP ) problem, then the value proposition to the problem and then the ICP’s Return on Investment ( ROI ) for the expense to the tech business. I like to build investor presentations bottoms up, not top down. Even established, publicly quoted businesses are known to forget the customer problem and the value proposition.

1. Clear Differentiation- Clearly articulate what sets your company apart from competitors. Highlight unique strengths, innovative offerings, or market advantages that position your company as a standout investment opportunity. This differentiation should be compelling enough to convince investors that your company has a sustainable competitive edge in the market. 2. Market Potential and Growth Trajectory- Demonstrate the size of the market opportunity and your company's potential for growth. Provide data-driven insights, such as market trends, target customer segments, and financial projections, to show how your company is well-positioned to capitalize on the opportunity.

A proposta de valor precisa incluir métricas e evidencias concretas com números que demonstrem a tração e a viabilidade do negocio. Tornando assim a startup mais atraente para um leque amplo de investidores.

It is even more granular. ICP's, especially when larger companies, have many times several decision makers and stakeholders, all with their own work related and personal motivators and KPI's. The value proposition should address all those people.

Business success is ten percent ideas and ninety percent persistence and sweat. The value proposition starts with the team you build , their background and their vision. Any business is subject to multiple pivots in strategy and even product offering, so agility is highly important. Successful business ideas need a path to creating a moat to protect from commoditization. This usually involves a degree of intellectual property or access to monopoly power (location as in port facilities). Just because an idea has not been implemented in the past is not a sufficient reason for an investor. Alternatively the value proposition must address pain points or friction in existing business processes.

Present a flexible strategic plan that accommodates varying levels of risk. Offer alternative scenarios with different risk-return trade-offs, allowing investors to choose the path that best aligns with their appetite.

I believe most entrepreneurs focus on idea and its execution to make a superior product or offerings. However most become successful with strategy of accomplishing day one profitability for the enterprise. Therefore it is an extremely important to have strategy in place from the day ideas is executable. I highly recommend a one page strategy which one should keep in front and refer daily. I came across a good template proposed by Gartner on one page strategy and that really works wonder with little efforts. While I learnt few startup’s, I realised that formal review of strategy is missing and causes digression. It is recommended to have strategy in place and follow religiously. A disciplined approach on strategy review is highly desired.

Experienced VC investors know that no plan survives contact with reality. They’re ready for you to pivot at any moment, so focus on being adaptable and prepared to adjust as needed.

Lol. There's no such thing as strategy at pre-launch startups. Do not waste your time making a meticulous strategy plan. The only strategy you need is: 1. Launch asap 2. Launch asap 3. Launch asap Have you launched yet? Great, then talk to your customers. Understand whether you're truly solving their pain point and that they're willing to pay for it. The 2nd half of that sentence is crucial. Most founders think that monetization comes later. It does not. If your customers aren't willing to pay for your solution then you're not solving a strong enough pain point for them. Continue to iterate until you have something customers are willing to pay $ for.

Uma boa comunicação começa com uma muito boa preparação. Antes de apresentar é indispensável que os fundadores entendam a tese e o perfil dos investidores de risco presentes. Manter uma comunição transparente e concistente que garanta que todos os investidores tenham acesso as mesmas informações. Abrir um canal regular para manter os investidores informados sobre o progresso ou sobre mudanças no plano de negocios.

Maintain transparent and open communication throughout the negotiation process. Address concerns directly, and ensure that all parties feel heard and respected.

At Projects RH, we excel in listening and presenting opportunities from an investor’s perspective. Effective funding negotiations require clear communication and understanding investors’ concerns. Actively listen to their preferences, use clear language to state issues, and articulate the investee’s vision. Acknowledge and address investor points to ease apprehensions. Facilitate open dialogue and encourage feedback to foster collaboration. Maintain transparency and seek common ground to align differing risk appetites with long-term goals. Ensure both groups feel respected.

"Hören Sie sich die Bedenken und Ziele jedes Anlegers genau an" Das ist total wichtig. Ich finde faszinierend, was man alles in einem Fundraising prozess lernen kann. :)

Sometimes not everyone in the negotiation is familiar with the customs. Call out risks as risks and be open to discussion. If you have a concern its more collaborative to raise it sooner than later. Concerns that come up as surprises are often frowned upon. Don't say stuff like "this conversation is going nowhere" or it can be a bit of a self-fulfilling prophecy for a while. Talk about the expectations and hopes and goals and what are the measures of success and failure. Don't be overly rigid or you'll never make it in venture.

A tecnica de negociação colaborativa Win-Win que é mais integrativa, pode ajudar a chegar em um concenso a todas as partes envolvidas, apresentando opções diferentes para cada perfil de investidor. Por exemplo açoes preferenciais para os investidores mais conservadores e notas conversíveis para aqueles que assumen mais riscos.

At some point jump in - if you believe in your ability to deliver everything is negotiable, even down the line after you close if you are a good actor you can renegotiate terms if need be

Some investors have unique circumstances that others don’t. For example, an impact investor like a private foundation will prioritize impact metrics measurement and reputation risk much more than pure financial return. They will typically require a Side Letter with unique terms to comply with regulations specific to private foundations that are irrelevant to traditional VCs. Know who you are adding to the capital stack and the ramifications of each. Some types of investors will co-exist well with others and some…not so much. Adjust accordingly.

The Team at Projects RH understands that navigating a funding negotiation with investors requires a strategic plan with tactics to get to “Yes”. The hard situation is when the investee and investor have different attitudes to risk and control. To get alignment we have seen used a number strategies such as special class of shares, SAFE notes and performance shares. Investors will appreciate a willingness to see alignment with what they see as a fair allocation of risk. We warn investees to be prepared to make concessions on less critical issues to win the issues which are key to them. By maintaining a flexible yet firm stance, you can effectively negotiate terms that satisfy diverse risk appetites and generally secure the necessary funding.

Risk appetite is the result of a lifetime of experiences and biases, seasoned with data observations brought and highlighted to reinforce or correct your own bias, or appetite for the risk offered. In this conversation you are missing the key component of this risk appetite function, the rewards. It is obvious that once rewards are included it will definitely help to find a common ground and fair agreement between conflicting risk appetites. If it is fairly compensated with feasible rewards, then the risk appetite conversation is out at ease. Go for the individual biases and financial standing to make the decision.

I believe this answer qualifies you to get a badge as an expert in sledgehammer management initiatives. #congrats

It definitely applies to both sides. We as investors also need to demonstrate that we are credible and long-term partners that will be able to support the company whenever needed.

Build trust by demonstrating your expertise, sharing past successes, and showing commitment to managing risks effectively. Trust can ease concerns and encourage investors to take on a level of risk they might otherwise avoid.

Having a good impression of someone does not mean trusting someone. Trust building does not happen overnight or just over a couple meetings. It's a long process that goes on well after an investor has provided capital into a given investment. But the start building it, make sure that your narrative is consistent, backed by data, sound arguments and transparent information. In addition, trust is also built on well written agreements where both investors and founders know what happens on every possible scenario, without misleading terms, so there is no room for surprises to either side. That applies to investing, partnering and any type of collaboration, and provides an effective route to mitigate risks for all parties.